Borrowings by banks under daily LAF increase again

With the advent of the festival season liquidity has tightened again. Banks borrowed Rs 86,260 crore under the repo auction of Reserve Bank of India's daily Liquidity Adjustment Facility (LAF) compared with Rs 78,185 crore on Tuesday.

“This is the festival season due to which borrowings by banks picks up. It is a general phenomena every year,” said a money markets expert with a private bank.

In the last one month daily average borrowing by banks under LAF stood at about Rs 52,000 crore. Keeping the festival season demand in mind the RBI had cut the Cash Reserve Ratio (CRR) by 25 basis points last month to 4.5 per cent of the net demand and time liabilities. CRR is the amount of funds that banks have to keep with the RBI,

The street expects the RBI to cut the CRR by further 25 basis points in the second quarter review of the monetary policy on October 30. According to experts this will help to bring down the daily average borrowing under the LAF window.